Treasury Secretary Janet Yellen on Monday pushed back against widespread concerns that a recession is unavoidable this year. The economy is “strong and resilient,” Yellen said, and capable of sustaining a robust labor market even as inflation cools.
“You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years,” Yellen told ABC’s Good Morning America, referring to Friday’s startlingly vigorous jobs report.
Yellen said she thinks inflation will continue to fall “significantly,” thanks both to the Federal Reserve’s anti-inflation campaign and to initiatives undertaken by the Biden administration, including efforts to lower to prices of fuel and prescription drugs.
"With the COVID pandemic and all the stress that placed on the economy, and then Russia's war in Ukraine that boosted food and energy prices, Americans are concerned about inflation and it's been President Biden's top priority to bring it down," she said.
Yellen also called on Congress to increase the debt ceiling without delay, warning once again about the dire consequences of failing to act in time. “America has paid all of its bills on time since 1789, and not to do so would produce an economic and financial catastrophe,” Yellen said. “Every responsible member of Congress must agree to raise the debt ceiling.”
Recession risk falling: Analysts at Goldman Sachs echoed Yellen’s sentiment on the economy as they tweaked their outlook for the coming year. “We have cut our subjective probability that the US economy will enter a recession in the next 12 months from 35% to 25%,” the analysts wrote in a research note Monday. “Continued strength in the labor market and early signs of improvement in the business surveys suggest that the risk of a near-term slump has diminished notably.”
Still, the Goldman analysts are more optimistic than most, and many prognosticators think that a recession is more likely than not this year. At the median, analysts surveyed by The Wall Street Journal put the odds of a recession at 65%.
Embracing the more bearish outlook, former Treasury Secretary and noted inflation hawk Larry Summers warned this past weekend that the U.S. economy is not “out of the woods” yet, despite the exceptionally strong jobs report for January. While Summers said the odds of a soft landing for the economy appear to be improving, he also thinks the Fed still has its work cut out for it as it attempts to get inflation back to its target rate.
Inflation indicators are “still unimaginably high from the perspective of two or three years ago, and that getting the rest of the way back to target inflation may still prove to be quite difficult,” Summers told CNN. If policymakers fail and pricing instability becomes entrenched, “we’re going to live with that inflation for a long time,” Summers said.